Aggregation of Heterogeneous Beliefs
Napp, Clotilde; Jouini, Elyès (2006), Aggregation of Heterogeneous Beliefs, Journal of Mathematical Economics, 42, 6, p. 752-770. http://dx.doi.org/10.1016/j.jmateco.2006.02.001
TypeArticle accepté pour publication ou publié
Journal nameJournal of Mathematical Economics
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Abstract (EN)This paper is a generalization of [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper] to a dynamic setting. We propose a method to aggregate heterogeneous individual probability beliefs, in dynamic and complete asset markets, into a single consensus probability belief. This consensus probability belief, if commonly shared by all investors, generates the same equilibrium prices as well as the same individual marginal valuation as in the original heterogeneous probability beliefs setting. As in [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper], the construction stands on a fictitious adjustment of the market portfolio. The adjustment process reflects the aggregation bias due to the diversity of beliefs. In this setting, the construction of a representative agent is shown to be also valid.
Subjects / KeywordsRepresentative agents; Aggregation of belief; Consensus belief; Heterogeneous beliefs
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